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Options Made Easy: Your Guide to Profitable Trading, Second Edition by Guy Cohen

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Myths and Realities

MythReality
“The stock can’t go any lower.”A stock can go down to zero—if it does so and you’re long in the stock, you could face a 100% loss unless you use a Stop Loss.
“The stock can’t go any higher.”This statement is just as farcical as the one above. Furthermore, it doesn’t actually mean anything. In theory, a stock can continue to go up forever, although nothing lasts forever, as we all know. Stocks can continue to appreciate year in year out, during good times and bad. The markets, being somewhat irrational, do go overboard, and many securities do get over or under valued at some point in time. If they didn’t, there would never be any opportunities for us to invest or trade in the first place. These excesses, which are ...

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